The last mile monopoly is the market failure, saying that internet connectivity should be just a "dumb pipe" is the ideology. Legislating wireline providers into being "dumb pipes" doesn't do anything to directly address the last mile issue, but instead uses the last mile issue as a hook for imposing an idealistic vision of what internet services should look like. There's no nexus between QoS or prioritization or the other sorts of things an ISP might want to do and the last mile monopoly.
A better legislative approach would be something like having municipal utilities own the last mile coax, and allowing different ISPs to plug into it. That would eliminate the market failure directly, and allow the industry to evolve into whatever structure makes sense. I think you wouldn't see them end up as dumb pipes in a competitive market. Some ISP would come along and make a deal with the NFL to have high quality streaming only on their network, etc. Just like how there's no monopoly in shipping but Amazon still has an advantage by being able to cut special deals.
Ok, that's our disagreement then. When I buy internet service, I and 99.999% of customers are trying to buy a dumb pipe. That's what it's marketed as, that's what the provider tells us we're buying.
I'd consider a patchwork of different providers with the same problem ("well, sprint has fast netflix but comcast has fast amazon") to be just as much of a market failure. That's bringing huge distortions to internet business, whether or not there's a monopoly on the last mile.
How about if we split it like so?
* Content-neutral QoS and prioritization isn't a market failure.
* Throttling netflix because they strategically threaten NBC (owned by comcast) is a market failure.
Would you agree with that sort of categorization?
How about the following?
* Throttling whichever service your customers are using the most so that you don't have to provide the bandwidth you sold to them under a contract, also a market failure.
Being out of compliance with what you think the internet should look like does not make for a "market failure." There has to be some sort of economic explanation: the existence of a negative externality, free-riding, etc. Even in competitive markets, companies still get together and cut deals and customers face choices like "Sprint with fast Netflix" versus "Comcast with fast Amazon." The mobile OS world is quite competitive, yet I still face choices like "Windows Phone with Office" versus "Android with Youtube." The restaurant industry is highly competitive, yet most places serve Coke or Pepsi but not both.
If you eliminated the last mile monopoly, which is an economically valid reason to regulate, with a targeted regulation, I still think you'd see a lot of the sort of activities that HN-ers dislike. There would still be a huge incentive for ISPs to vertically integrate and buy up content companies and cut special deals. What does Comcast care if they don't own the actual coax into my house, just everything leading up to it? Who can compete with them when they have a "killer app" like Hulu and their competitors don't?
So, if which ISP I happen to be a customer of completely dictates which streaming service I wind up using, then the actual merits of the product have become divorced from which product I buy. That's textbook market failure, right? Dollars aren't flowing to the best product or the cheapest, they're flowing to the product approved by someone in a completely different industry. The invisible hand isn't doing shit for me in that scenario.
Is the next phase of this discussion "the free market will create incentives to start new telephony companies that don't throttle your favorite website"?
For an analogy, should the electric company have a say in which brand CPU I use? Or should they just sell me watt/hours?
Is it a market failure that I can't use Nokia Maps on iOS, or Apple Maps on Android or Google Maps on Windows Phone? I'm no proponent of invoking the "magic market fairy" but to me situations like that fall far short of "market failure."
I guess it all comes down to you not seeing internet conectivity as a utility. Personally, I think it has a lot more in common with sewer/electricity, from the near impossibility of market entrance right down to the sewer/electric/phone lines being physically next to each other, than to putting a phone in a box and selling it to someone.
Heck, I'd even put mobile service as being closer to a normal consumer good than wired internet. Wireless they just need one tower every few miles.
There are some similarities, and a lot of differences. Most households have a fixed demand for power and water. Meanwhile, bandwidth demands have exploded in just 10 years. That's a blink of an eye in utility timescales. 100 year old water pipes are still usable. 10 year old network infrastructure can be obsolete. Public institutions simply aren't able to bring to bear the kind of capital investment necessary to keep up with changing internet technologies and growing demand. People complain about telecoms not investing enough in infrastructure upgrades, but our public infrastructure is has accumulated trillions of dollars in maintenance debt. Even as demand is stable, its a challenge to just maintain existing levels of service in our water, sewer, and power systems.
A better legislative approach would be something like having municipal utilities own the last mile coax, and allowing different ISPs to plug into it. That would eliminate the market failure directly, and allow the industry to evolve into whatever structure makes sense. I think you wouldn't see them end up as dumb pipes in a competitive market. Some ISP would come along and make a deal with the NFL to have high quality streaming only on their network, etc. Just like how there's no monopoly in shipping but Amazon still has an advantage by being able to cut special deals.